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The Resource Amendment (Section 92A) and the Political Economy of Canadian Federalism Robert D Osgoode Hall Law Journal Article 2 Volume 23, Number 2 (Summer 1985) The Resource Amendment (Section 92A) and the Political Economy of Canadian Federalism Robert D. Cairns Marsha A. Chandler William D. Moull Follow this and additional works at: http://digitalcommons.osgoode.yorku.ca/ohlj Article Citation Information Cairns, Robert D.; Chandler, Marsha A.; and Moull, William D.. "The Resource Amendment (Section 92A) and the Political Economy of Canadian Federalism." Osgoode Hall Law Journal 23.2 (1985) : 253-274. http://digitalcommons.osgoode.yorku.ca/ohlj/vol23/iss2/2 This Article is brought to you for free and open access by the Journals at Osgoode Digital Commons. It has been accepted for inclusion in Osgoode Hall Law Journal by an authorized editor of Osgoode Digital Commons. The Resource Amendment (Section 92A) and the Political Economy of Canadian Federalism Abstract The 1982 er source amendment to the Constitution, section 92A, purports to alter the balance of federal- provincial legislative powers in relation to natural resources. Section 92A was enacted into the Constitution largely as a result of the federal-provincial resource conflicts of the 1970's and early 1980's; conflicts in which the chief antagonists were the federal government and the governments of the Western provinces. In this article, the authors discuss the development of section 92A from its roots in the conflicts of the 1970's, and explore section 92A's possible legal, political and economic effects on the inter-governmental framework for managing Canadian resources and on the resolution of any future federal-provincial conflicts over resources. This article is available in Osgoode Hall Law Journal: http://digitalcommons.osgoode.yorku.ca/ohlj/vol23/iss2/2 THE RESOURCE AMENDMENT (SECTION 92A) AND THE POLITICAL ECONOMY OF CANADIAN FEDERALISM BY ROBERT D. CAIRNS*, MARSHA A. CHANDLER**, WILLIAM D. MOULL*** The 1982 resource amendment to the Constitution, section 92A, purports to al- ter the balance of federal-provincial legislative powers in relation to natural resources. Section 92A was enacted into the Constitution largely as a result of the federal-provincialresource conflicts of the 1970's and early 1980's; conflicts in which the chief antagonistswere the federal government and the governments of the Western provinces. In this article, the authors discuss the development of section 92A from its roots in the conflicts of the 1970's, and explore section 92A's possible legal, political and economic effects on the inter-governmental framework for managing Canadian resources and on the resolution of any fu- ture federal-provincial conflicts over resources. In the last decade, natural resource policy, especially in relation to energy, has been one of the major issues confronting Canada. Much of the conflict can be explained by the interweaving of resource policy and Canadian federalism. Resource policies have generated disputes among governments and across regions." Constitutional considerations have, in turn, created conflict in resource policy-making. All of these conflicts centred on the power to control and manage resource development and the inter-governmental allocation of resource revenues. Section 92A, the resource amendment to the Constitution Act, 1867, came into force on April 17, 1982. It was the only element of the constitutional patriation package that directly altered the balance of federal-provincial legislative powers.2 The objective of this paper is to examine the impact of this constitutional amendment on Canadian fed- © Copyright, 1985, Robert D. Cairns, Marsha A. Chandler, William D. Moull. * Associate Professor, Department of Economics and Centre for the Study of Regulated In- dustries, McGill University. ** Associate Professor, Department of Political Science and Faculty of Law, University of Toronto. *** Associate Professor, Osgoode Hall Law School, York University. The authors would like to acknowledge support received from the Institute for Research on Public Policy during earlier research conducted on section 92A. ' Moreover these intergovernmental disputes have exacerbated differences between the pub- lic and private sectors. The impact of section 92A on these conflicts between the state and indus- try is considered in a companion paper, titled "Constitutional Change and the Private Sector: The Case of the Resource Amendment (Section 92A)." I P. Hogg, Canada Act 1982 Annotated (1982) at 102. OSGOODE HALL LAW JOURNAL [VOL. 23 No. 2 eralism. In particular, how does the altered legal framework affect the political and economic forces that shape the Canadian federal system? For this exploration of the connections between Canada's legal structure and its political economy, the paper is divided into three parts. The first examines the conflicts that have dominated Canadian resource politics and the ways in which these conflicts have been man- aged. The second part focuses on the legal effects of section 92A, con- centrating on the changes that seem to result in the respective powers of the federal and provincial governments and in the areas in which scope for federal-provincial conflict remains despite - or even because of - its changes in the formal distribution of legislative powers. The final part considers section 92A as part of a framework within which Canadians will manage their natural resources and examines a number of related issues. For instance, how will this change bear on the inter- governmental conflicts that constitute resource politics? What gains have been realized by the West, the region that sought the amend- ment? What are the implications of this section for federal resource policy-making? And what issues have been left unresolved? I. RESOURCE POLITICS For much of Canada's post-war history, resource politics was an area in which sporadic disputes between governments or between indus- try and government punctuated a relatively placid sphere of public pol- icy.3 However, following the OPEC oil embargo in 1973 and the Ira- nian revolution in 1979, disputes over the management of revenues from energy resources tested the internal strength of Canadian federalism. 4 A. Traditional Resource Politics After the Leduc find in the 1940s and the general expansion of the Canadian oil and gas industry, resource politics continued in the tradi- tion that had existed since Confederation. Provincial proprietary pow- ers over oil and gas and federal powers over trade and commerce were exercised to benefit the industry. Governments stimulated private activ- 3 For a description of the early phases of energy policy see, e.g., I. McDougall, Fuels and the National Policy (1982). For mineral policy, see W. MacDonald, Constitutional Change and the Mining Industry (1980) and D. Patton, "The Evolution of Canadian Federal Mineral Policies" in C. Beigie & A. Hero, eds. Natural Resources in U.S.-Canadian Relations (1979) at 203. 4 See K. Norrie, "Energy, Canadian Federalism and the West" (1984) 14 Publius 79 and R. Simeon, "Natural Resource Revenues and Canadian Federalism: A Survey of Issues" (1980) 6 Cdn. Pub. PoL 182. 1985] Resource Amendment (Section 92A) ity by offering tax incentives and direct subsidies, as well as by imple- menting the necessary infrastructure and ancillary services. Resources have been viewed as levers to growth in two ways. In the first place, resources themselves are a means of providing employ- ment and development - both directly, in the resource sector of the local economy, and indirectly, through linkages to other sectors. Sec- ondly, resources provide revenue to government. Stevenson contends that the inclusion of section 109 (which provides for provincial Crown ownership of natural resources) in the part of the Constitution Act, 1867 on "Revenues; Debts; Assets; Taxation" was intended mainly as a means of insuring revenues to the provincial governments. Stevenson suggests, however, that the real significance of section 109 has become its use as a means of promoting provincial industrialization and eco- nomic diversification. 5 Historically, however, the second lever has had limited applicabil- ity. Provincial ownership of resources meant that Crown resources were a potential source of revenue. Although the provinces guarded this source of revenue against possible federal incursions, sole reliance upon it to meet provincial needs was insufficient. This changed after the dra- matic increases in the world price of oil in 1973 when large economic rents were created. Until that time, the private sector retained most of the revenue generated by resource development." In fact, under fed- eral and provincial tax systems, the resource industries were treated more favourably than other sectors of the economy.7 Development was pursued, historically, by attempting to work the first lever. To the extent that they were explicitly formulated, resource policies were best described as localized and narrow. They were based on a symbiotic relationship between federal and provincial governments and producer interests, and upon the geographically localized distribu- tion of resources within Canada. In fact, the drawing of Canada's na- tional and provincial boundaries largely reflected this distribution of the resource endowment. The differences in resource endowment have meant that provincial or regional interests have always been diverse, but have not necessarily been conflicting. Indeed, provincial interests have been broadly compa- rable due to the role of natural resources as levers of growth. The di- 5 G. Stevenson,
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